Indonesia to Ease Restrictions on Foreign Ownership

The Indonesian government is considering a new policy that would allow foreign buyers to own luxury apartments

Indonesia is moving closer to implementing a plan to allow foreigners to own luxury apartments, in a bid that has been cautiously welcomed by the industry.

Foreign nationals are not allowed to buy property in Indonesia – Southeast Asia’s largest economy – under current laws but the government said recently it would loosen restrictions, and the changes will be finalized by the end of the year.

The new laws are expected to allow foreigners to buy apartments priced above 5 billion rupiah (US$375,000), although they will still not be able to buy houses.

“The state will allow foreign nationals to have apartments in Indonesia for their lifetime, and the apartments may be bequeathed to their descendants or resold,” Land Minister Ferry Mursyidan Baldan was quoted as saying by the Jakarta Globe newspaper recently.

Currently, foreigners can lease a property for 25 years through what is called a “right-of-use” provision, like a leasehold title.

Under the new plan foreign luxury apartment purchases would still fall into the leasehold category, although without any time limit on ownership.

The Indonesia Real Estate Developers’ Association said the proposal would help boost the country’s tax revenue and the competitiveness of its property sector, in the face of competition from its regional neighbors Singapore, Malaysia and Thailand.

“We strongly support the government on this. This will help boost the market, although it will be a niche market,” the association’s vice-president Artur Batubara told Mansion Global.

Apartments priced above 5 billion rupiah account for less than 5% of the overall market, according to Batubara’s estimates, and are limited to places such as the capital Jakarta, the resort island of Bali and Batam, an industrial hub near Singapore.

Batubara admitted challenges would remain, however. The price threshold being considered is high, and the proposal fell short of expectations that foreign buyers would be able to purchase under the “right-of-ownership” category, which is only applicable to Indonesians.

Officials have said limitations are needed to prevent foreigners snapping up property and pushing up prices beyond the reach of ordinary Indonesians.

“We support the government in imposing restrictions, but we believe the restrictions have to be market-friendly,” Batubara cautioned.

Despite the current restrictions, many foreigners buy property in Indonesia through loopholes in the law by using a local resident such as an Indonesian spouse, a friend or agent, although legal experts have warned this is risky.